What Oracle Results Mean For The Q4 Earnings Cycle There are many attractive qualities about Oracle (NYSE: ORCL) as an investment but it stands out on our radar for a single reason; Oracle reports earnings almost exactly midway between...

Oracle Has Its Head In The Clouds

There are many attractive qualities about Oracle (NYSE: ORCL) as an investment but it stands out on our radar for a single reason; Oracle reports earnings almost exactly midway between the peaks of earnings cycles and gives us a bit of insight into the coming reporting period. This time around, Oracle's results point to accelerating adoption of cloud-based services, better than expected performance, share buybacks, and a continuation of the rally. The question now is whether this performance will be restricted to the tech sector or if the broader S&P 500 index will report just as well. Regardless, Oracle's results are game-changing in the eyes of the market and have shares rocketing higher.

Oracle Beats And Guides Above Consensus

Oracle's fiscal Q2 was driven by the company's push into cloud computing. Late to the game, Oracle has been working hard on its cloud-based database solutions and growth is exceeding market expectations because of it. The company reported $10.4 billion in net revenue for the period or up 6.1% from last year and 185 basis points better than the Marketbeat.com consensus estimate. Last year, sales were up a smaller 1.5% so the results are not only better than expected but an acceleration from the previous year that we lingering into the current quarter at least. On a segment basis, cloud services revenue is up 22% to underpin the company's growth with both Fusion ERP and Netsuite ERP leading the group.

Moving down to the margin the news is a little mixed but ultimately bullish for the stock. The GAAP margin came in negative due to the impact of an unfavorable ruling related to the employment of a former CEO. The good news is that this ten-year-old problem is now behind the company and the adjusted results are much better. The adjusted $1.21 in EPS is up $0.15 from last year and beat consensus by a dime.

Turning to the guidance, the company is guiding Q3 revenue and earnings in a range bracketing the consensus while it maintains the FY outlook. The FY outlook for earnings and revenue is slightly above consensus and suggests momentum will build in the 2nd half of the fiscal year. Regardless, the company's cash flow and earnings are strong and fueling a healthy dividend and a buy-back program. Oracle's dividend isn't huge at 1.25% yield but it is better than the S&P 500 average and very safe. More importantly, the board authorized a new repurchase program worth $10 billion or 3.5% of the market cap.

The Analysts Are Driving Oracle Higher

No fewer than 15 sell-side analysts have come out since Oracle reported earnings to reiterate bullish stances, raise the price target, and even one rating upgrade. The Marketbeat.com consensus is firm Hold leaning to Buy with a price target that assumes a small amount of downside. The caveat, however, is that the consensus of the 15 most recent analysts targets is closer to the $100 mark and includes the high price target of $126. The $100 is still about 5% below the current price action, the $126 mark, however, implies about 20% of the upside.

The Technical Outlook: Oracle Confirms Uptrend

Oracle has been in a long and protracted uptrend for many years and that uptrend just changed gears. Price action is up more than 10% in the wake of the earnings release and trading at a new all-time high. Assuming the market is able to hold this level and follow through on the move, we see the stock advancing to the $115 level at least. This is confirmed by the indicators, as well, which are showing strong, trend-following entry signals.